Gasper A. Garofalo

Regional Convergence: Evidence from a New State-by-State Capital Stock Series

This paper seeks to reconcile the growth empirics technique of Mankiw, Romer, and Weil (1992) with the empirical results of Barro and Sala-i-Martin (1991) through the development of a new database covering the 1977-96 period. We create state-by-state capital stock and gross investment estimates by apportioning the national capital stock among the states. Using these estimates along with gross state product and employment data, we find evidence that the Solow growth model explains state-wide growth during this period. We consistently find a rate of convergence of around 2. Our results, as a consequence, suggest that the empirical results of Barro and Sala--Martin are driven by the neoclassical growth process of Solow.

An integrated model of the economic effects of right-to-work laws

This study derives an empirical model which simultaneously traces the effect of Right-to-Work laws on the worker’s decision to join the union, the union’s decision to set the wage rate, and the firm’s decision to employ inputs. The model identifies two channels through which Right-to-Work laws affect these decisions: the wage effect and the productivity effect. Our results show that RTW laws tend to affect economic decisions through the wage effect, because the effect of RTW laws on productivity is small in most states.

Regional Measures of Capacity Utilization in the 1980s

This paper presents a model to estimate the rate of capacity utilization (CU) in the manufacturing sector by state. Consistent measures of state-level CU rates have been unavailable since 1982. The lack of a capacity measure has hindered regional studies of capital formation, long-run output growth, and productivity growth. Our model employs a neoclassical approach to estimate CU. We estimate a model to determine the optimal level of production and compare it with the actual level in order to define our CU index. Our results show that states in the West North Central, South Atlantic, and Pacific census divisions tend to have a CU index consistently above the nations average. On the other hand, states in the East North Central and West South Central census divisions tend to have a CU index below the nations average.

The impact of changes in input prices on net investment in U.S. manufacturing

The growth rate of capital formation in the U.S. declined substantially during the 1970s. Feldstein [1983] estimates that the net fixed nonresidential investment to GNP ratio fell nearly 40 percent from the late 1960s to the late 1970s. Further, this decline is more pronounced in building investment than in machinery investment. He finds that the ratio of building investment to GNP declined by 60 percent over the period, whereas the equipment ratio only fell by about 20 percent. Although there may be several explanations for these trends, the neoclassical theory of the firm predicts that, among other factors, relative input prices are important determinants of net investment. During the 1970s, the relative input price structure changed considerably, with energy prices rising most rapidly. From a policy perspective, it is necessary to quantify the link between input prices and net investment in order to formulate policies which will stimulate the growth of net investment. Using the neoclassical model of investment, this study analyzes the importance of input prices to the process of net investment and net capital formation in U.S. manufacturing. 1 In the empirical estimation of the neoclassical investment model, researchers generally have assumed a Cobb-Douglas production

Analysis of regional productivity with capital as a quasi-fixed factor

Abstract Most existing studies of regional productivity growth do not incorporate the effect of variations in capacity utilization on changes in output. By failing to do so, their factor productivity estimates are biased. To overcome this shortcoming, we adjust multifactor productivity growth measure for changes in capacity utilization. Our technique recognizes that capital is a quasi-fixed factor which implies that capital in the short run can be either under- or over-utilized by a firm. Our results from 1974 to 1978 show that capacity adjusted multifactor productivity growth measure exceeds capacity unadjusted multifactor productivity growth measure for the nine census divisions. The bias in the capacity unadjusted measure of multifactor productivity growth is approximately 8 percent in East North Central and over 33 percent in Mountain. We find that the aggregate factor productivity growth is slowest in the traditional manufacturing belt (Middle Atlantic and East North Central divisions). The level of aggregate factor productivity in the manufacturing belt, however, is almost 33 percent higher than in regions in the south.

A note on the measurement of agglomeration economies with compensation for urban disamenities

Abstract The net agglomeration and disamenities approaches to the measurement of agglomeration economies are merged. The net agglomeration view is represented by a labor demand function derived from Segal (D. Segal, Rev. Econ. Stat. 48 , 339–350 (1976)). The disamenities view is represented by an upward-sloping labor supply function derived from Izraeli (O. Izraeli, Urban Stud. 14 , 275–290 (1977)). Three cases are simulated. Case I is the benchmark case and assumes a linear homogeneous production function, no agglomeration economies, and no perceived environmental quality differences between cities. Cases II and III combine Segal and Izraeli by introducing agglomeration economies, an upward-sloping labor supply function, and a change in the level of air pollution. The results demonstrate the feasibility of isolating the output of market goods and environmental goods within a common framework.

Intertemporal and Interspatial Productivity Differentials in U.S. Manufacturing

This study analyzes the role productivity plays in explaining the variation in regional manufacturing growth rates. Using the neoclassical growth accounting procedure, we measure productivity from an intertemporal and interspatial perspective. Previous regional studies of U.S. manufacturing look only at the contribution of intertemporal productivity growth in explaning regional growth. These studies ignore the level of productivity and its effect on regional growth. For each year of our study, we rank regions by their interspatial productivity index. We find little difference between the productivity growth rates among the regions of the north and south. Differences among the regions emerge only when we consider interspatial productivity differentials. The Norths level of factor productivity is 25 to 30% higher than the Souths. The absolute productivity disadvantage of the South, however, is offset by its low input prices. Thus, it is the cost advantage of the South and not its productivity advantage that explains the regions relatively high growth rate.